TX-18-04-06_Real_Estate_Finance-1.pdf

TX-18-04-06_Real_Estate_Finance-1.pdf - Providing...

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Unformatted text preview: Providing Award-Winning Real Estate Education Since 1983 Champions School of Real Estate Awards 2014 Best Companies to Work For in Texas 2013 Houston Business Journal - #5 Best Places to Work 2013 BBB Award for Excellence 2007 National Pinnacle Award, RealtyU 2006 National Pinnacle Award, RealtyU 2005 National Pinnacle Award, RealtyU 2003 WCR TX Chapter Affiliate of the Year 2003 Chairman’s Leadership Award 2000 Chairman’s Leadership Award Champions School Individual Awards 2010 Top 50 Most Influential Women in Houston 2008 Texas WCR Business Woman of the Year - Rita Santamaria 2008 HAR Hero of the Month for February - Rita Santamaria 2007 WCR Houston Chapter Business Woman of the Year - Rita Santamaria 2007 WCR Texas Business Woman of the Year - Rita Santamaria 2002 & 2004 RealtyU Instructor of the Year - Sue Ikeler 2003 NAR REBAC Realtor® Hall of Fame - Rita Santamaria 1994 WCR Chapter President Award Real Estate Finance 1 Champions School of Real Estate® TABLE OF CONTENTS CHAPTER 1: THE NATURE AND CYCLE OF REAL ESTATE FINANCE............................................. 7 The Real Estate Market - Characteristics of Real Estate.......................................... 9 The Nature of Real Estate Finance......................................................................... 9 Mortgage Lending Activities............................................................................... 12 Origination..................................................................................................... 12 Loan Processing............................................................................................. 12 Underwriting.................................................................................................. 12 Closing........................................................................................................... 12 Funding.......................................................................................................... 13 Servicing......................................................................................................... 13 Real Estate Cycles.................................................................................................. 13 Impact of the Economy...........................................................................................19 Table of Contents Information Resources............................................................................................ 20 Skill Builder - Internet Resources........................................................................ 22 CHAPTER 2: MONEY & THE MONETARY SYSTEM.........................................................................25 What is Money?...................................................................................................... 27 Monetary and Fiscal Policy.................................................................................. 27 The Federal Reserve System.................................................................................... 28 Price and Inflation................................................................................................ 29 Instruments of Credit Policy................................................................................ 29 Open Market Operations............................................................................... 29 The U.S. Treasury and the U.S. Mint..................................................................... 30 The Federal Deposit Insurance Corporation (FDIC)..............................................32 The Federal Home Loan Bank (FHLB) System..................................................... 33 Information Resources............................................................................................ 34 Skill Builder - Internet Resources.........................................................................35 ii CHAPTER 3: ADDITIONAL GOVERNMENT INFLUENCE................................................................. 37 Copyright © 2018 Champions School of Real Estate® U.S. Department of Housing and Urban Development...........................................39 Significant Federal Legislation............................................................................... 42 Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act).............. 42 Dodd-Frank Wall Street Reform and Consumer Protection Act......................... 43 Consumer Financial Protection Bureau (CFPB).................................................. 43 Community Reinvestment Act (CRA)................................................................. 44 Equal Credit Opportunity Act (ECOA).............................................................. 44 Truth In Lending Act (TILA)..............................................................................45 Real World Scenario: Advertising Loan Programs............................................... 48 Home Mortgage Disclosure Act (HMDA).......................................................... 49 Fair and Accurate Credit Transaction Act (FACTA)............................................52 Administrative Procedures Act (APA)..................................................................53 Agricultural Lending...............................................................................................53 U.S. Department of Agriculture (USDA)............................................................ 54 State and Local Programs........................................................................................56 Table of Contents Texas Department of Savings and Mortgage Lending..........................................56 Texas Department of Housing and Community Affairs (TDHCA).....................57 Texas Veterans Land Board (VLB).......................................................................58 Texas Home Equity Loans....................................................................................59 Texas Home Equity Lines of Credit Loans...........................................................61 Texas Reverse Mortgage........................................................................................61 Reverse Mortgage for Purchase of Homestead..................................................... 62 Real Estate Settlement Procedures Act (RESPA).................................................. 63 Regulation X........................................................................................................ 63 RESPA Section 8................................................................................................. 64 Affiliated Business Arrangement Disclosure.................................................. 65 RESPA Section 9 .................................................................................................70 RESPA Section 10................................................................................................70 Copyright © 2018 Champions School of Real Estate® iii Required Lender Notices........................................................................................ 73 RESPA Disclosures.............................................................................................. 73 Final RESPA-TILA Integrated Disclosures........................................................ 73 Disclosures Before Settlement / Closing Occurs ..................................................75 Truth in Lending Act (TILA) / Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures............................................................................................. 78 The Loan Estimate Form..................................................................................... 78 Closing Disclosure.................................................................................................. 85 CHAPTER 4: THE SECONDARY MORTGAGE MARKET...................................................................93 Secondary Mortgage Market...................................................................................95 Major Participants in the Secondary Market........................................................ 96 The Government-Sponsored Enterprises................................................................ 96 Fannie Mae........................................................................................................... 96 Table of Contents Freddie Mac......................................................................................................... 97 Government National Mortgage Association (Ginnie Mae).............................. 100 Farmer Mac........................................................................................................ 100 Real Estate Mortgage Investment Conduits (REMICs).......................................102 CHAPTER 5: SOURCES OF FUNDS..................................................................................................... 105 Overview of the Mortgage Market........................................................................107 Primary Mortgage Market..................................................................................107 Commercial Banks........................................................................................107 Savings and Loans.........................................................................................107 Life Insurance Companies.............................................................................108 Pension and Retirement Programs................................................................108 Credit Unions................................................................................................108 Mortgage Companies....................................................................................109 Mortgage Brokers and Bankers...........................................................................109 iv Correspondent Lenders.................................................................................110 Copyright © 2018 Champions School of Real Estate® Real Estate Trusts..................................................................................................111 Real Estate Investment Trusts (REIT)...............................................................111 Real Estate Mortgage Trusts (REMT)...............................................................111 Real Estate Bonds..................................................................................................111 Private Lenders......................................................................................................113 Foreign Lenders.....................................................................................................114 CHAPTER 6: INSTRUMENTS OF REAL ESTATE FINANCE........................................................... 117 Encumbrances........................................................................................................119 Liens......................................................................................................................119 The Note and Deed of Trust (Trust Deed)............................................................121 The Note and Mortgage.........................................................................................121 Contract for Deed (Land Contract)...................................................................... 122 Subordinate Finance Instruments......................................................................... 123 Special Provisions in Mortgage Lending Instruments.......................................... 124 Review of Promissory Note Form......................................................................... 126 Table of Contents Review of Trust Form........................................................................................... 128 CHAPTER 7: LOAN TYPES, TERMS & ISSUES................................................................................ 135 Interest.................................................................................................................137 Skill Builder - Interim Interest............................................................................139 Loan Amortization..............................................................................................140 PITI Workshop - Conventional Loans.................................................................143 Real World Scenario: Calculate PITI..................................................................144 Types of Loans.......................................................................................................145 Fixed-Rate Mortgages.........................................................................................145 Adjustable Rate Mortgages.................................................................................145 Making the Decision: Fixed Rate vs. ARM.......................................................149 Other Loan Plans................................................................................................150 Refinancing Existing Conventional Loans............................................................152 Copyright © 2018 Champions School of Real Estate® v Private Mortgage Insurance (PMI).......................................................................153 Sub-Prime and Predatory Lending........................................................................154 Mortgage Fraud.....................................................................................................159 Mortgage Fraud Red Flags..................................................................................164 Participation Agreements......................................................................................164 Tax Impacts in Mortgage Lending........................................................................164 CHAPTER 8: GOVERNMENT LOANS................................................................................................. 167 Federal Housing Administration - FHA............................................................169 Direct Endorsement............................................................................................172 FHA Contributions to Real Estate Finance........................................................172 FHA Mortgage Insurance Premiums............................................................172 FHA Reverse Mortgages....................................................................................183 Skill Builder - FHA Reverse Mortgage..............................................................185 Table of Contents Department Of Veterans Affairs - VA................................................................186 VA Loan Guaranty........................................................................................186 Additional VA Loan Programs...........................................................................191 Native American Direct Loan ............................................................................193 Specially Adapted Housing/Special Housing Adaptation (SHA) Grants...........193 FHA Case Study...................................................................................................194 VA Case Study.......................................................................................................195 CHAPTER 9: LENDER LOAN PROCESSES........................................................................................ 197 Buyer Pre-Qualification.........................................................................................199 Borrower’s Credit History...................................................................................199 Reading a Credit Report.................................................................................... 206 Review of Sample Credit Report.......................................................................... 209 Qualifying the Borrower.....................................................................................213 Real World Scenario - Qualifying the Borrower................................................ 227 vi Review of Uniform Residential Loan Application................................................ 228 Copyright © 2018 Champions School of Real Estate® Review of Request for Verification of Deposit...................................................... 236 Review of Request for Verification of Employment.............................................. 238 Qualifying the Collateral...................................................................................... 240 Information Collected By Appraisers............................................................241 Three Approaches To Value.................................................................................241 Review of Uniform Residential Appraisal Report.................................................245 Lender Closing Costs........................................................................................... 249 Qualifying the Title...............................................................................................250 Evidence of Title.................................................................................................250 Review of Title Commitment................................................................................256 Loan Qualification Case Study............................................................................. 266 CHAPTER 10: DEFAULTS & FORECLOSURES..................................................................................269 Defaults..................................................................................................................271 Adjustments and Modifications.............................................................................271 Streamlined Modification Program (SMP).........................................................272 Table of Contents Home Affordable Modification Program (HAMP)............................................273 Types of Foreclosures.............................................................................................273 Texas Foreclosure ..................................................................................................274 Judicial Foreclosure..............................................................................................274 Non-Judicial Foreclosure ....................................................................................275 Texas Foreclosure Right of Redemption........................................................276 Deficiency Judgments............................................................................................276 Tax Impacts of Foreclosure....................................................................................276 Information Resources...........................................................................................277 APPENDIX: THE LOAN ESTIMATE AND CLOSING DISCLOSURE BREAKDOWNS................279 Loan Estimate...................................................................................................... 280 Closing Disclosure................................................................................................ 297 vii Copyright © 2018 Champions School of Real Estate® ANSWERS TO EXERCISES.................................................................................................................. 317 ANSWERS TO CASE STUDIES...........................................................................................................325 GENERAL TEST INFORMATION.........................................................................................................329 BIBLIOGRAPHY AND ENDNOTES..................................................................
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